Gold futures head for biggest monthly loss in two years on US rates outlook

Gold fell for a fourth day, headed for the biggest monthly loss in two years and the longest stretch of weekly declines since 1999, as an improving US economy prompted the Federal Reserve to reinforce expectations of a rate hike this year.

Gold futures for delivery in December traded 0.50% lower at $1 083.3 per troy ounce at 06:50 GMT, shifting in a daily range of $1 088.9 – $1 082.3. The contract slid 0.4% on Thursday to $1 088.7 and is down 7.8% for the month and 0.3% for the week, headed for a sixth weekly drop.

The yellow metal remained pressured near last Fridays 5-1/2-year low after an initial estimate of second-quarter GDP growth by the Bureau of Economic Analysis showed that the US economy expanded by an annualized 2.3% in the second quarter. Although this trailed analysts projections for growth of 2.6%, a revision to the first-quarters reading showed an expansion of 0.6% instead of a previously-reported 0.2% contraction.

This reinforced expectations that the Federal Reserve will initialize its first interest rate hike since 2006 this year, likely in September or December, supporting the US dollar and curbing golds appeal as it yields returns only through price gains and doesnt pay interest or give returns like competing assets such as equities and bonds.

This weeks Federal Open Market Committee meeting saw policy makers introduce little changes to their language on the conditions needed to justify a hike, saying they need to see “some” further improvement in the labor market, and that they must be “reasonably confident” inflation will reach its 2% medium-term goal. The Committee added that policy decisions are “data dependent”, with focus falling on economic growth, employment figures and inflation.

Policy makers said that the job market has been improving, citing solid job gains and declining unemployment, and although they provided no definitive timetable for the rates liftoff, the market has already largely priced a move in September or December, keeping the precious metal near multi-year lows.

The US dollar softened on Friday versus a gauge of six trading peers and was little changed for the week but headed for a sizable monthly advance, buoyed by overall upbeat US data. The US dollar index contract for settlement in September traded 0.28% lower at 97.425 at 06:50 GMT, up 1.8% in monthly terms.

Meanwhile, the precious metal has failed to see a jump in physical demand from top consumers China and India even at these attractive price levels, with analysts projecting the slide to continue and test the key psychological level of $1 000 this year. Data by the US Commodity Futures Trading Commission showed that speculators turned bearish on gold in the week ended July 21st for the first time since the government started tracking data in 2006, holding a net-short position of 11 345 contracts.

Global assets in gold-backed ETFs have been declining for three straight months to the lowest since 2009. Holdings in the SPDR Gold Trust, the biggest such ETF, were unchanged on Thursday for a fourth day at 680.15 tons, the lowest since September 2008. Assets have shrunk by almost 50% since peaking in December 2012 at 1353.35 tons.

Pivot points

According to Binary Tribune’s daily analysis, December gold’s central pivot point on the Comex stands at $1 089.5. If the contract breaks its first resistance level at $1 097.4, next barrier will be at $1 106.2. In case the second key resistance is broken, the precious metal may attempt to advance to $1 114.1.

If the contract manages to breach the S1 level at $1 080.7, it will next see support at $1 072.8. With this second key support broken, movement to the downside may extend to $1 064.0.

In weekly terms, the central pivot point is at $1 097.8. The three key resistance levels are as follows: R1 – $1 122.0, R2 – $1 157.9, R3 – $1 182.1. The three key support levels are: S1 – $1 061.9, S2 – $1 037.7, S3 – $1 001.8.